1. If the term structure is upward sloping and the risk premium is negative, we know with certainty which of the following? i) Investors expect interest rates to rise ii) The two year rate is above the one year rate iii) The forward rate will be above the spot or current rate iv) The expected return from a two year bond is above the expected return from rolling over in two one-year bonds a) I and II only b) I, II, and III only c) II and III only d) I, III, and IV only

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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1. If the term structure is upward sloping and the risk premium is negative,
we know with certainty which of the following?
i) Investors expect interest rates to rise
ii) The two year rate is above the one year rate
iii) The forward rate will be above the spot or current rate
iv) The expected return from a two year bond is above the expected return
from rolling over in two one-year bonds
a) I and II only
b) I, II, and III only
c) II and III only
d) I, III, and IV only
Transcribed Image Text:1. If the term structure is upward sloping and the risk premium is negative, we know with certainty which of the following? i) Investors expect interest rates to rise ii) The two year rate is above the one year rate iii) The forward rate will be above the spot or current rate iv) The expected return from a two year bond is above the expected return from rolling over in two one-year bonds a) I and II only b) I, II, and III only c) II and III only d) I, III, and IV only
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